By Diana Brondel, CEO of Xaalys, Adrien Touati, CEO of Manager. One and Mung Ki Woo, CEO of Ditto
The recent misadventures of Wework have rekindled the polemics about the hypergrowth of new tech players. Above all, they have revealed WeWork’s lack of understanding of this model, which has bet everything on unbridled growth, to the detriment of short-term profitability, to the point of reaching stratospheric levels of valorisation. Yet hypergrowth is not supposed to be a financial headlong rush, but a model where technology and its large-scale deployment are the engine of growth, rather than profitability. If technology is not scalable, any future profitability is a decoy. WeWork was not a hyper-growth company, or even a technology company, so its failure was inevitable in the absence of profitability.
In terms of hypergrowth, Europe is lagging behind but is leading the way in one sector: digital banking. A number of companies with real hypergrowth in this sector were born in Europe.
For example, Revolut in the UK is reportedly raising $1.5 billion , and aims to double in size by 2021, from 6 to 12 million customers and adding 24 markets (including the US, Japan and Singapore) to the 32 it already serves. Germany’s N26, which already operates in 24 countries, raised $170 million in July 2019 and has just started marketing in the United States. So far, no other continent has created a digital bank capable of such rapid international deployment.
In the aftermath of the WeWork debacle, should we expect to see a slowdown in these European stars who have set out to conquer the world? If this were the case, consumers and the European ecosystem would suffer. For consumers, it is undeniable that competition from these new entrants has spurred the traditional players, who have made huge investments in their digital plans, to bring their services and customer experience to a comparable level. In other words, the hypergrowth of these neobanks has stimulated the whole market.
Europe’s lead over the rest of the world is largely due to the liberalization of its banking market. The successive directives on payments (DSP1 in 2007, supplemented by a version 2 in 2018) are intended to usher in the era of open banking by promoting innovation and allowing a large number of new non-bank players to enter the market.
Furthermore, the possibility for a player authorized in a single European Union country to offer its financial services throughout Europe, thanks to the European financial passport, greatly facilitates the expansion of new entrants. It confronts them directly with European players whose quality of service, although imperfect, is infinitely higher than on the American market. Players such as Revolut and N26 are armed against the GAFA, which are trying to infiltrate the banking market through account keeping. They know how to combine radically modern experience with banking expertise that the GAFA does not yet possess. While the WeWork sham could scald European investors, who are already less inclined than their American counterparts to take risks, hypergrowth is now a strategic issue for Europe if it is to reach a sufficient size to compete on equal terms with the GAFA and recompose the global banking landscape. Otherwise, the future will be invented by others, and we will not be able to complain about it.
Ditto Services (France), société par actions simplifiée au capital de 590.000 euros, enregistré au RCS de Nanterre sous le numéro 842 578 320. Banque Travelex, société anonyme au capital de 72 599 428.08 euros, RCS Nanterre 389585233. Banque Travelex est agréé en tant qu’établissement de crédit par l’Autorité de Contrôle Prudentiel et de Résolution.